SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

OR

 

[    ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from ___________ to ____________

 

Commission File Number 000-51750

 

PHOENIX MEDICAL SOFTWARE, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada	20-4846807
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

604 Creekview, Ovilla, Texas 75154

(Address of principal executive offices)

 

  (800) 843-8179

(Issuer's telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:.  Yes [ X ]   No [     ].

 

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

	Large Accelerated Filer [   ]		Accelerated Filer [  ]
	Non-Accelerated Filer   [   ]		Smaller Reporting Company [X]

 

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act:  Yes [   ]   No [X].

 

As of August 15, 2011 there were 9,513,667 shares of Common Stock of the issuer outstanding.

 

 

 

TABLE OF CONTENTS

 

	PART I FINANCIAL STATEMENTS
Item 1	Financial Statements	3
Item 2	Management's Discussion and Analysis or Plan of Operation	7
	PART II OTHER INFORMATION
Item 1	Legal Proceedings	12
Item 2	Changes in Securities	12
Item 3	Default upon Senior Securities	12
Item 4	Submission of Matters to a Vote of Security Holders	12
Item 5	Other Information	12

 

 

 

 

 

 

 

 

 

PHOENIX MEDICAL SOFTWARE, INC.
(FORMERLTRIPLE AMEDICAL, INC.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)

  

						(Audited)
		June 30, 2011				December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	31,164			$	222,348
Accounts receivable, net of allowance for doubtful accounts of $316,753       and $216,825			272,858				107,439
Total Current Assets			304,022				329,787
Developed software, net			94,750				133,007
TOTAL ASSETS		$	398,772			$	462,794
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	165,761			$	153,483
Line of credit			27,282				34,691
Advanced from shareholder			30,200				5,200
Total Current Liabilities			223,243				193,374
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 20,000,000 authorized,
none issued and outstanding			-				-
Common stock, $0.01 par value, 50,000,000 authorized,
9,513,667 and 9,513,667 issued and outstanding, respectively			9,514				9,514
Additional paid-in-capital			2,016,234				2,016,234
Subscription deposits			2,625				2,625
Accumulated deficit			(1,852,844	)			(1,758,953	)
Total stockholders’ equity			175,529				269,420
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	398,772			$	462,794

 

 

See accompanying summary of accounting policies and notes to unaudited consolidated financial statements.

 

 

 

 

 

PHOENIX MEDICAL SOFTWARE, INC.
(FORMERLTRIPLE AMEDICAL, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For theThree and Six months Ended June 30, 2011 and 2010

   

		Three Months Ended								Six months Ended
		June 30								June 30,
		2011				2010				2011				2010
REVENUE			759,832				596,388			$	1,142,264			$	954,187
OPERATING EXPENSES:
Depreciation and amortization			19,128				21,181				38,257				42,364
Selling, general and administrative			558,757				570,527				1,197,925				1,020,534
Total operating expenses			577,885				591,708				1,236,182				1,062,898
Income (loss) from operations			181,947				4,680				(93,918	)			(108,711	)
OTHER INCOME
Interest income			10				15				27				60
Net income (loss)			181,957				4,695			$	(93,891	)		$	(108,651	)
Basic and diluted weighted average shares outstanding			9,513,667				9,367,000				9,513,667				9,503,464
Basic and diluted net loss per share			0.02				0.00			$	(0.01	)		$	(0.01	)

 

 

See accompanying summary of accounting policies and notes to unaudited consolidated financial statements.

 

 

 

 

 

 

PHOENIX MEDICAL SOFTWARE, INC.
(FORMERLTRIPLE AMEDICAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six months Ended June 30, 2011 and 2010
(Unaudited)

   

 

		Six months Ended
		June 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(93,891	)		$	(108,651	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization			38,257				42,364
Stock issued for services			—				85,000
Bad debt expense			99,928				27,892
Change in operating assets and liabilities:
Accounts receivable			(265,347	)			(56,658	)
Accounts payable and accrued expenses			12,278				2,482
NET CASH USED IN OPERATING ACTIVITIES			(208,775	)			(7,571	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock, including stock subscription deposits			—				17,625
Payments on line of credit			(7,409	)			(1,307	)
Advances from shareholder			25,000				—
Payments to shareholder			—				(22,910	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			17,591				(6,592	)
NET DECREASE IN CASH			(191,184	)			(14,163	)
CASH, BEGINNING OF PERIOD			222,348				132,993
CASH, END OF PERIOD		$	31,164			$	118,830
NON-CASH TRANSACTIONS
Common stock issued for conversion of debt		$	—			$	15,000
SUPPLEMENTAL DISCLOSURES
Interest paid		$	—			$	—
Income taxes paid			—				—
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements

 

 

 

 

 

 

PHOENIX MEDICAL SOFTWARE, INC.

(FORMERLY TRIPLE A MEDICAL, INC.)

Notes to the Consolidated Financial Statements

(Unaudited)

 

 

NOTE 1--BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated financial statements of Phoenix Medical Software, Inc. (formerly Triple A Medical, Inc.) (“Phoenix Medical”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the rules and regulations of the Securities and Exchange Commission.  They do not include all information and notes required by U.S. generally accepted accounting principles for complete financial statements.  These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes contained in Phoenix Medical’s Annual Report on Form 10-K filed on March 31, 2011 for the year ended December 31, 2010.

 

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been included.  The results of operations for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Certain 2010 amounts have been reclassed to agree with the 2011 classifications.

 

 

NOTE 2--RECENT ACCOUNTING PRONOUNCEMENTS

 

There are no recent accounting pronouncements that are expected to have a material impact on the Company’s present or future consolidated financial statements.

 

 

NOTE 3--GOING CONCERN

 

Phoenix Medical has recurring losses and an accumulated deficit.  Additionally, Phoenix Medical has incurred recurring deficits in cash flows from operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern. However, Phoenix Medical's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

Phoenix Medical's ability to continue as a going concern is dependent upon its ability to successfully market and implement its developed software product and to achieve profitable operations.  The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

 

 NOTE 4--RELATED PARTY TRANSACTIONS

 

In order to fund the development of the software, Phoenix Medical entered into an ‘Investment and Net Revenue Agreement’ with Phoenix Ortho, LLC (ORTHO), an entity controlled by a relative of the President of Phoenix Medical. In exchange for this contributed capital, Phoenix Medical provided ORTHO with an income participation interest in its operations.  The terms of this agreement require Phoenix Medical to pay ORTHO 33.1% of the net revenues generated by the business in the immediately preceding month.

 

As of December 31, 2010 and June 30, 2011, Phoenix Medical had unpaid advances owed to Paul McCune, the sole Director of the Company. The unpaid advance totaling to $30,200 as of June 30, 2011 and $5,200 as of December 31, 2010 is unsecured, bears no interest and is due on demand.

  

The Company rents office space from the President at $5,000 per month. The expense for the three months ended June 30, 2011 and 2010 was $15,000. The expense for the six months ended June 30, 2011 and 2010 was $30,000.

 

 

 

 

 

 

 ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

 

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

 

General

 

The Company was founded to create electronic healthcare software applications.  The initial development is an Electronic Health Record (EHR), specifically designed to meet the needs of orthopedic physicians. For the past four years, our President, Morgan McCune, has worked directly with dozens of orthopedic physicians in more than 40 states.  He has reviewed orthopedic clinical research and extensively surveyed reference materials.  Based upon the research, Mr. McCune created a database with a graphical interface to assist orthopedic physicians with the documentation of the patient encounter.

 

The six months ended June 30, 2011 saw the Company to continue to drive revenue through both system contracts and legacy maintenance revenue.

 

 

RESULTS FOR THE FISCAL QUARTER ENDED JUNE 30, 2011

 

During the six months ended June 30, 2011, we continued marketing our software and following up on sales leads and continue to experience double-digit growth in both the recent fiscal quarter (27%) and over the first six months (20%) versus 2010. The sales cycle can be anywhere from three months to one year.  In addition to a couple independent sales persons and alliances with marketing partners, we have a full time salesman on commission only.  Our sales leads continue to be generated and followed up on as we receive them from our own efforts by attendance at trade shows and from referrals from our industry cross marketing agreements. We have hit a stage in our business where we have our software developed and running smoothly and our infrastructure built so that we can install and maintain a multiple number of installations. During of the year ending December 31, 2010 we ran into a cash squeeze whereby the cost to maintain our infrastructure, which we estimate we need sales of approximately $500,000 per quarter, was considerably more than our sales. The second quarter of 2011 has been our best quarter ever with revenue of approximately $759,800 generating net income of approximately $181,900. 

 

REVENUE. Revenue in the three months ended June 30, 2011 was $759,832 compared to $596,388 in the three months ended June 30, 2010. Revenue in the six months ended June 30, 2011 was $1,142,264 compared to $954,187 in the six months ended June 30, 2010.

 

The fluctuation in sales is due to the timing of closing sales contracts.  Please reference the table below to view the Installation Contracts quarter-to-date (QTD) and year-to-date (YTD) for 2011 versus 2010.

 

	2011		2010
	QTD	YTD	QTD	YTD
Installation Contracts	$545,096	$727,041	$465,334	$772,367
Maintenance/Other	214,736	415,223	131,054	181,820
TOTAL	$759,832	$1,142,264	$596,388	$954,187

 

 Revenue for the three month period ended June 30, 2011 was impacted by nine new implementation contracts and a carryover from 2010 with the difference related to maintenance/service on existing installations.  During the three and six months ended June 30, 2011 there were a total of 32 customers making up the service/maintenance revenue of $214,736 and $415,223, respectively.  In contrast, during the three and six month periods ended June 30, 2010 there were a total of 17 customers making up the service revenue of $131,054 and $181,820, respectively.  Monthly maintenance revenue is important to establishing consistent cash flow and profitability once the Company reaches the right level of critical mass.

 

Installation contract revenue for the three months ended June 30, 2011 was $545,096 compared to $465,334 for the three months ended June 30, 2010.  Installation contract revenue for the six months ended June 30, 2011 was $727,041 compared to $772,367 for the six months ended June 30, 2010. In 2011 there have been 3 new/carryover installation contracts with average billing of $60,600.  In 2011 we have 11 new contracts with average billings so far of $60,000 (not all complete thus average is low compared to final billings). In 2010 there were nine new installation contracts with average billing of $85,800.

 

 

 

 

EXPENSES. Total operating expenses, not including depreciation expense, were $558,757 for the three months June 30, 2011 compared to $570,527 for the three months ended June 30, 2010.  Total operating expenses, not including depreciation expense, were $1,197,925 for the six months June 30, 2011 compared to $1,020,534 for the six months ended June 30, 2010.

 

The decrease in expenses of about $12,000 in the three month period ended June 30, 2011 is due to the following factors. Decreased commissions of $112,000 (as the company has been selling more in-house versus third party agents) and reduced travel and admin of $50,000 was mostly off-set by increased employee leasing and contract services of $121,000 (staffed-up in fiscal fourth quarter of 2010 and maintained staff level in 2011), and marketing and trade shows of $29,000.

 

The increase in expenses of about $177,000 in the six month period ended June 30, 2011 is due to the following factors. Increased employee leasing and contract services of $183,000, increased bad debt provisions of $72,000, increased travel and admin expenses of $96,000, and increased marketing / trade show expense of $30,000, partially offset by decreased commissions of $205,000.

 

Depreciation and amortization expense was $19,128 and $21,181 for the three months ended June 30, 2011 and 2010, respectively. Depreciation and amortization expense was $38,257 and $42,364 for the six months ended June 30, 2011 and 2010, respectively.  

 

OTHER INCOME. We had interest income of $10 and $15 for the three months ended June 30, 2011 and 2010, respectively. We had interest income of $27 and $60 for the six months ended June 30, 2011 and 2010, respectively.

 

NET LOSS. Net income for the three months ended June 30, 2011 was $181,957 compared to $4,695 for the three months ended June 30, 2010.  Net loss for the six months ended June 30, 2011 was $93,891 compared to net loss of $108,651 for the six months ended June 30, 2010. The change in income (loss) for both the three and six month periods is directly related to the net impact of revenue and expenses as discussed above

 

LIQUIDITY AND CAPITAL RESOURCES. Our cash balance at June 30, 2011 was $31,164 compared to $222,348 at December 31, 2010.  As discussed in Note 2 the Company has recurring losses and an accumulated deficit.  Additionally, Phoenix Medical has incurred recurring deficits in cash flows from operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company plans for liquidity needs on a short term and long term basis as follows:

 

Short Term Liquidity:

The company currently relies on short-term financing of working capital from individual investors and also shareholder advances, when necessary, to fund operations.

 

Long Term Liquidity:

The long term liquidity needs of the Company are projected to be met primarily through the cash flow provided by operations.  Although our operating cash flow from operations is negative $208,775 for the six months ended June 30, 2011, we signed eight new contracts in the fiscal second quarter and expect the receivables to generate better cash flows in our fiscal third quarter.  As we sign new contracts and perpetuate maintenance revenue we expect cash flow from operations to fund itself.

 

Capital Resources

 

Over the past few years we have noticed that our business does not have a seasonal trend.  Currently our revenue stream is geared toward installation contracts and as we grow we expect to see a more balanced revenue line between installation and maintenance sales.

 

We do not expect any significant change to our equity or debt structure and do not anticipate entering into any off-balance sheet arrangements.

 

Material Changes in Financial Condition

 

WORKING CAPITAL: Working capital declined by $55,634 to $80,779 since December 31, 2010.  This reduction is due to four main items.

Firstly: Cash decreased $191,000 due to maintaining expense structure (unfavorable)

Secondly: Net accounts receivable increased $165,000 (favorable)

Thirdly: AP/Accrued Expenses increased $12,000 (unfavorable)

Fourthly: Shareholder advances increased $25,000 (unfavorable)

 

Employees

 

As of June 30, 2011, the Company had seven employees which it pays through an employee leasing agreement.  Four of the employees are support and/or technical personnel.

 

 

 

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

 

ITEM 4: CONTROLS AND PROCEDURES

 

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2011.  This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective to ensure that all material information required to be filed in the quarterly Form 10-Q has been made known to them.

 

For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seg.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure, controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

 Based upon an evaluation conducted for the period ended June 30, 2010, our Chief Executive and Chief Financial Officer as of June 30, 2010 and as of the date of this Report, has concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:

 

●  Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction.

●  Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.

 

In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.

 

 Changes in Internal Controls over Financial Reporting

 

We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q/A that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

  

PART II

 

Items No. 1, 2, 3, 4, 5 - Not Applicable.

 

 

Item No. 6 - Exhibits and Reports on Form 8-K

 

(a) No reports on Form 8-K were filed during the six months ended June 30, 2011.

 

(b)   Exhibits

 

 

Exhibit Number		Name of Exhibit
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PHOENIX MEDICAL SOFTWARE, INC.

 

By /s/ P. Morgan McCune

 

P. Morgan McCune, President, CFO

 

Date: August 15, 2011